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The need for benefit brokers to leverage their high-touch value with technology has never been more important. Customers are pulling and competitors like Zenefits are pushing brokers in this direction. Resistance is futile.

This was the message of yesterday’s post, which, like this one, is based on my talk at the California Association of Health Underwriters’ TechSummit in late-September. This second post describes why choosing the right technology is critical and offers a checklist to help benefit brokers find that right technology.

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Shopping for technology can be confusing and frustrating. Having a plan to help you assess your options, however, can minimize the pain.The first step to stress-free (or at least stress-reduced) tech shopping is to know what you’re looking at: a mere device or a whole product? When buying the technology upon which you’ll build and maintain your business, you want a product, not just a device.

Devices versus Whole Products

The problem is it’s sometimes hard to tell one from the other unless you know what to look for.

Geoffrey A. Moore discusses the difference between devices and products in his book Crossing the Chasm (although what I call devices he labels “generic products”). A device is the core hardware or software being sold—and only that core. A product is that device and, in Mr. Moore’s words, “whatever else the customers need in order to achieve their compelling reason to buy.” (Here’s a graphic from my CAHU talk on the difference between devices and products).

Looking at a smartphone? What you hold in your hand is the device. The product is that equipment plus the data plan plus the warranty plus the operating system (e.g., Apple, Android or Windows) plus the apps available plus the cool-looking case and so on. The phone itself is a device; the other elements make it a product.

Most of us lack the expertise to make devices productive. We need products. To make sure the technology you’re contemplating is the complete package ask the vendor questions about their training, service, peripherals, compatibility and so on. And keep asking until you’re satisfied you know what you’re getting.

The Checklist

Once you’ve established you’re buying a product, a checklist can help you sort through important issues. The checklist that follows concentrates on four considerations: choice; cost; confidence; and comfort. With some issues, the “wrong” answer is a deal-breaker. Others simply raise factors you should consider. If, for example, the technology vendor is liable to use your data to steal your clients, I’m thinking “deal-breaker.” Whether it’s critical that the software makes it easy to port your data over to an alternative depends on how difficult and important it is to recreate your database.

Also, remember: no technology is perfect. That’s why manufacturers are constantly issuing updates and new versions. The key is to look for a solid solution, not an unattainable ideal. Remember, the worst technology is the one you need, but don’t use.

Choice:

Technology is just a tool, a means to an end. And it may not always be the means you need. When evaluating tech, ask “Do I need this technology to achieve my goals?” or “Do I need this technology to achieve my goals more quickly and efficiently?” (This assumes you know your goals and what it takes to achieve them. The importance of having a business plan is something I address in detail in Trailblazed: Proven Paths to Sales Success).” If you can’t articulate how the technology is going to help you take your business where you want to go, then you can probably pass on it.

Probably, but not until you ask “Do my clients need this technology to achieve their goals or to achieve them more quickly and efficiently?” If the product benefits your clients, then it’s invariably worth considering.

Cost:

Technology can be expensive and it always costs much more than the sticker price. There’s also the time it takes to learn to use the product or to teach your clients to use it. Resources may be required to set up and maintain the tools. New hires need to learn how it works. Then there’s the lost productivity as everyone adapts to upgraded versions (just ask anyone transitioning to Windows 10). All of this time, energy and resources add to the true price of the product.

So ask, “Can my clients and I afford the technology?” and “Can we afford to use it?” For example, when buying a printer you need to know how much the machine costs. However, you’ll also want to know the cost of replacement ink. A cheap printer needing costly ink may be a worse deal than a more costly printer using less expensive ink.

Confidence:

More than cash is on the line when adopting technology. You’re also risking your business and reputation. (Of course, not adopting technology poses a risk as well). If that great new software doesn’t perform as promised it’s you and your team who will be distracted, inefficient and, to use the technical term, pissed—none of which will grow your business.

Then there’s security. Your client will blame you if the technology you brought to them releases their personal and financial data into the wild. Any technology you buy must be HIPAA compliant. More, the product needs to keep your and your clients’ data encrypted, safe and secure.

When teaming up with a vendor you need to be confident they won’t use the data you provide them against you. Some HR admin companies started out competing with benefit brokers before deciding to work with them. What’s to stop these companies from reversing course again, but this time armed with your client data? Still other companies offer their products to brokers and compete with them for clients. Really? Is that where you want to entrust your data?

Which means you should ask: “Will the technology perform as promised?” “Will my and my clients’ data be protected?” and “Will they compete with me?”

Comfort

Technology should fit your business, not require you to change what you do in order to use the product. Too many vendors, especially those whose leadership have only technology or investing backgrounds, don’t get this concept.They believe they know what’s best for their customers. They design their product to dominant (they’d say “instruct”), not serve, their customers. Avoid this hubris. It rarely turns out well.

There are risks involved with any technology. No product works perfectly all the time; some just work perfectly more often than others. You need to assess where you are on the adoption curve, which graphs how much risk a user is willing to accept in order to get access to a product. Geoffrey Moore’s book, Crossing the Chasm, explores in detail who is ready to adopt technology and when. (As summarized in this slide describing his adoption curve from my CAHU TechSummit presentation).

For example, Early Adopters embrace the promise of technology and accept the risk inherent in something new. What Mr. Moore labels the “Late Majority” are reluctant to embrace technology until it’s established and proven. Neither position is “right.” And you may be on a different part of the adoption curve for different technologies. What matters is knowing where you are on the curve for the technology you’re looking at. Asking others already using the product about its dependability and usefulness is a good way to assess if you’re ready to embrace it.

Sometimes you don’t realize a product is a bad fit until you’ve used it for a while. Some vendors purposefully make it hard to leave them. This is being “sticky” and Silicon Valley loves sticky. Unless you’re an investor, however, remember that it’s your content, not theirs. If you can’t fire the vendor, be careful about hiring them.

So ask: “Where am I on the adoption curve for this technology?” “What have others experienced?” and “What’s my escape plan?”

A little credit for selflessness here: As disclosed, below, I’m helping bring NextAgency to market. As a new technology we lack a track record. If that’s too risky for you, well, that’s my loss. But I still encourage you to ask these comfort questions.

Checklist:

As noted earlier, not every question is do-or-die nor will any single vendor have perfect answers to each question. However, this checklist will help you narrow the field so you can zero in on the best technology for your business.

*************************************Full Disclosure: I’m a co-founder of Take 44, Inc. In early 2016 we plan to launch NextAgency, a platform helping benefit brokers leverage technology to deliver their high-touch value. NextAgency also helps brokers level the playing field in competition with Zenefits, Namely and other high-tech disruptors because we believe, on a level field, community-based brokers will win

“The question is not if benefit agencies will go digital. The question is when. The answer … 2016.”

That’s how I began my technology talk at the California Association of Health Underwriters’ TechSummit on September 29th in Universal City. Several in attendance asked for the presentation. Since the slides are mostly key words and graphs, I thought sharing the content here over a couple of posts would be more helpful.

I’ve been engaged in sales technology since the 1980’s (yes, Millennials, we had technology back then). However, the need for successful producers to embrace technology has never been greater. This first post explains why. Tomorrow I’ll offer a checklist brokers can use when selecting technology.

Or consider this: in 2013, nearly half of Staples sales were over the Internet. This makes Staples the nation’s third largest online retailer behind Amazon and Apple and ahead of Walmart. The same survey found Office Depot was the ninth largest online retailer. That’s a lot of businesses, both large and small, using technology to buy something as prosaic as office supplies.

Digital activity by clients is creating a gravitational force pulling more-and-more benefit brokers into the tech orbit. After all, if your clients are using technology and conducting business online, shouldn’t you?

If customers are pulling brokers to go digital, competitors are pushing them in the same direction. In poker, if you look around the table and don’t see the sucker, you’re the sucker. Similarly, if you’re not using technology to grow your business, someone else is using technology to take your business.

Zenefits and Others Push Brokers Toward Tech

Exhibit A: Zenefits—the Donald Trump of benefit brokers. Like Mr. Trump, Zenefits can behave like a rich, arrogant bully. Yet, either because of or in spite of this character flaw, Mr. Trump and Zenefits have shaken up their worlds and highlighted weaknesses in established players.

Yet, for all his bombast and bullying, Mr. Trump has forced other Republican presidential candidates to step up their game (a task at which many are failing). They may not like him, but his opponents need to adapt to his presence. Zenefits and similar companies like Namely and Gusto are forcing brokers to adapt to new realities. In this new world, simply delivering value is no longer enough. Clients now need to perceive that value.

It’s Perceived Value that Matters

Benefit brokers have long provided considerable value to their clients. They shop the market and find the right solution for clients’ unique needs. They answer questions and resolve problems. They provide informed, personalized, professional counseling and advocacy on behalf of their clients before and after the sale. Simply put: they earn their commissions.

Yet, for too long, too many brokers have been hesitant to highlight their value. In fact, they often undermine how clients perceive their worth by claiming their services are free. This is both inaccurate (health insurance premiums include brokers’ commissions) and diminishing (consumers tend to undervalue what they don’t pay for).

Zenefits takes advantage of brokers’ modesty. They offer businesses free HR and benefit administration software in exchange for being named the employers’ broker-of-record. That’s an attractive deal when the software has perceived value and the services of the incumbent broker is hidden.

Technology can help put brokers’ value on display by providing greater insight into what brokers deliver. Increased transparency can lead to greater perceived value.

Zenefits and new firms like them have seized on this digital gap to tilt the playing field in their favor. When your competitor points a neon arrow at your problem, it’s smart to pay attention. Many brokers are and that’s what’s pushing them toward increased use of technology.

Successful Brokers Leverage Tech

Competition from well-funded technology firms has never been greater, but there’s nothing new about the role technology plays in helping brokers get ahead. My book, Trailblazed: Proven Paths to Sales Success, grew out of a study of 200 health insurance brokers in six states. The study sought to identify what practices, processes and perspectives fast-growing sales professionals shared that their less successful colleagues did not.

Among our findings was that high-growth producers were significantly more likely to incorporate technology into their business than the others. They were more likely to use technology across a broader range of functions, too. Brokers whose business was declining were the least likely to have incorporated technology into their practice.

When I led individual and small group sales at WellPoint (now Anthem) I championed the 1999 launch of AgentConnect, which enabled our agents to sell individual coverage online through their own websites. While competitors (think PacifiCare) were trying to displace brokers using the Internet, we used it to empower brokers. The result: WellPoint increased our market share while hundreds (and eventually thousands) of independent agents launched online sales initiatives. Many of them ranked among WellPoint’s top producers.

WellPoint’s AgentConnect launched 16 years ago, but was not the first sales technology adopted by successful benefit brokers. I was helping program the quoting system for Multiple Services (the small group general agency my father, Sam Katz, founded in Los Angeles) in 1983. And there were digital sales tools available before then.

Not If, When

Technology has been a part of the employee benefit world for a very long time. The increased pull of clients and push of competitors just makes the need to leverage tech tools more pressing ever before. As noted at the start of this post, the question is when will brokers will go digital. I believe the answer is early next year.

Many brokers have already adopted innovative technologies. The majority, however, have not and now face a dilemma. Do they deploy new digital tools—or ask their clients to deploy new technology—in the middle of open enrollments, ACA calculations and the host of other time-consuming, business-threatening challenges all happening between now and the end of the year? Or, do they wait until 2016 to leverage the tools available to them?

I have a stake in the answer (as disclosed, below), but even if I didn’t, I’d bet most brokers will fight their way through the rest of 2015 with the tools they have before transforming their agencies with new technologies.

Being thoughtful about the technology you embrace is important, because the decision is critical. Not only are you entrusting your livelihood to the technology, you’re entrusting your reputation and your clients’ well-being to the platform you choose. Adopting technology costs more than money, there’s a host of hidden expenses as well. I’ll discuss these and other factors, as well as offer a checklist to help you evaluate your technology options, in tomorrow’s post.

*************************************Full Disclosure: I’m a co-founder and CEO of Take 44, Inc., a technology company which, in early 2016, will launch NextAgency. The NextAgency platform will integrate quoting, CRM and enrollment tools to help brokers sell more with powerful HR and benefit administration tools they can give to clients for free. This is in pursuit of our mission: to help benefit brokers level the playing field against high-tech disruptors like Zenefits while spotlighting their high-touch value.

As you know, this blog has been—and remains—on hiatus. I’m playing around with reviving it down the road, but before I could even think that idea through, a California issue has arisen that compels me to write something now. That issue is Proposition 45. There’s a long and storied history in California of great sounding initiatives that harbor devastating impacts. Proposition 45 is one of those and that’s why it needs to be defeated on November 4th.

Proposition 45 is Unnecessary

Proposition 45 supporters claim it will lower costs by simply requiring the California Department of Insurance Commissioner to approve rate and benefit changes to individual and small group medical plans before they take effect. (Large group coverage is exempt and untouched by Proposition 45). Whether this would actually lower rates or not is an open issue. After all, insurance rates are driven by a host of issues—the cost of medical care, new technologies and drugs, an aging population and changing demographics, increasing rates of chronic conditions—none of which are addressed by Proposition 45.

Regardless of its intent, Proposition 45 is late to the lower-premiums party. The Patient Protection and Affordable Care Act (the “ACA”), often referred to as ObamaCare, already requires carriers to spend a specified percentage of the premium they take in on medical services and related expenses. This mechanism acts to prevent the price gouging Proposition 45 proponents claim is rampant in the industry.

That Proposition 45 is unnecessary is reason enough to vote no on the initiative. But it’s far worse.

Proposition 45 Gives too Much Power to One Politician

Proposition 45 doesn’t create a single payer system; it creates a single overseer system. By explicitly giving the Insurance Commissioner authority over rates and benefits, Proposition 45 gives this elected official implicit power over everything relating to health plans in California. This includes what treatments carriers cover—or don’t cover, what doctors and hospitals are in—or out—of a carrier’s network, what insurers spend on marketing and distribution, and virtually everything else but what colors are in the carrier’s logo. And a creative Commissioner could probably find a way to control that as well.

The ability to leverage explicit powers to expand control over other items isn’t idle conjecture. I’ve seen it done in other contexts. In fact, I did this kind of thing in another context. When I served on the Santa Monica City Council we used our authority over zoning to extract all sorts of concessions from developers. For example, while we didn’t have explicit authority to require a developer to set up a job training program in the city, leveraging our power over zoning exceptions we got it anyway.

The power given the Insurance Commissioner by Proposition 45 is unprecedented—and dangerous. For example, while the Commissioner oversees insurance companies, HMOs are regulated by the Department of Managed Health Care. Proposition 45, however, allows the Commissioner to overrule a DMHC decision concerning an HMO’s rates. Or benefits. Or network. Or anything else.

Covered California is the state agency running the medical exchange in the state setup pursuant to the ACA. In that role Covered California negotiates with participating carriers over rates and benefits. Under Proposition 45, however, the Commissioner (or, as we’ll see, virtually anyone else) can object to the deals reached by Covered California. The result, discussed below, could be catastrophic for California’s health insurance exchange.

So long as we continue to elect human beings to public office no politician should be given such unbridled power. The temptation to misuse it (even in the name of all that’s good and just) would overpower a saint. And to my knowledge, there are few politicians who have been up for sainthood.

Here’s an interesting fact: every elected California Insurance Commissioner but two have run for higher office. One of the exceptions, Chuck Quackenbush was indicted and resigned the office. The second, the incumbent Dave Jones, simply hasn’t had the time yet. Commissioner Jones will be reelected this Tuesday and is widely assumed to be eyeing a run for Governor, Senator or Attorney General at the next opportunity. The post of Insurance Commissioner is a stepping stone, not a destination.

There’s nothing wrong with political ambition. But it does mean almost every decision made by an office holder is at least partially a political one. The calculus facing an Insurance Commissioner when reviewing a carrier’s rate submission is pretty straightforward. At the next election does the Commissioner want to run ads bragging about the hundreds of millions of dollars they saved voters or does she want to give her opponent ammunition to call her a tool of the evil insurance companies? In the political world, regardless of party affiliation, this choice is as close to a no brainer as politicians are legally allowed to stand. The market isn’t always a perfect pricing mechanism, but it’s far preferable to a political one.

Proposition 45 Will Create Chaos and Confusion

Some 35 other states require state regulators to approve rate changes. None of them, however, have an “intervener” system like that contained in Proposition 45 (or gives such extensive power to a single politician). Proposition 45 enables “consumer advocates,” lawyers and others to object to carriers’ rate actions. Once their intervention is accepted by the Commissioner, these interveners can earn $675 per hour for their efforts. A similar provision in Proposition 103, which dealt with auto and home insurance, has earned the authors of that initiative millions of dollars since its passage. No wonder they included a role for interveners when they drafted Proposition 45.

The extremely lucrative intervener provisions in Proposition 45 are virtually guaranteed to result in costly and frequent objections. Which means rate and benefit changes could be delayed months. Under Proposition 103, the average rate filing subject to intervention takes 343 days … over 11 months. Given that health insurance is not the same as property & casualty coverage this is extremely troubling. Timely decision-making is even more important with medical coverage than homeowner and auto policies.

If anything remotely close to these delays were to result from Proposition 45 the result would be chaos and confusion. Here’s a nightmare to consider: the premium subsidies available individuals in Covered California’s individual exchange is based on the cost of a specific plan (the second lowest cost Silver plan for those interested). What happens if, after this linchpin-product is identified, priced and in place, an intervener objects to its rates? What would the premium subsidy be based on then? What plans would be available in the exchange? It could, and I believe probably would, take months to decide. And by then open enrollment in the exchange could be over.

Think of the opportunities for mischief. Want to undermine the ACA? Wait until the last-minute and then object to the plans and rates negotiated by Covered California. No wonder the Board of Covered California have expressed their dismay about the damage Proposition 45 could do to their program.

Broad Opposition to Proposition 45

And the Board of Covered California (who took no formal position in opposition to Proposition 45) are not the only ones concerned about Proposition 45. The roster of Proposition 45 opponents is broad and impressive.

Minority Leader Pelosi joins the California Medical Association, the California Hospital Association, the Service Employee International Union of California, the California State Conference of the NAACP, the Small Business Majority, the California Association of Health Plans and a host of others in opposing Proposition 45. Significantly, the vast majority of newspapers in the state are opposing the initiative as well, including the Los Angeles Times, Sacramento Bee, U-T San Diego and the San Francisco Chronicle.

As are the major agent and broker organizations: CAHU, NAIFA-California, IIAB-Cal and WIAA have come together to form Agents of Action. This is a grassroots effort to generate 100,000 No votes on Proposition 45. The strategy is by harnessing the efforts of brokers throughout the state to educate and motivate their clients, colleagues, friends and family on why it’s important to defeat Proposition 45. (Full disclosure, I’ve played a leadership role in Agents of Action).

If you’re a broker in California, please check out the web site at www.AgentsOfAction.org, download the tools available to you there and get your network out to the polls on November 4th to vote No on Proposition 45. As Agents of Action emphasizes, Proposition 45 is bad for you and worse for your clients.

Of course, the important thing to do is vote. Too many have given too much for us not to live up to our responsibilities.

California became the first state to enact legislation creating an exchange under the Patient Protection and Affordable Care Act on September 30th when Governor Arnold Schwarzenegger signed into law AB 1602 (authored by Assembly Speaker John Perez) and SB 900 (by Senator Elaine Alquist). The two bills create the California Health benefit Exchange. In signing the bills Governor Schwarzenegger stated “Choice and competition have the power to improve health care quality and reduce health care costs for California consumers. With the California Health Benefit Exchange, we will be able to create a competitive marketplace where consumers can choose among qualified health plans – all without relying on the state’s General Fund.”

The five-person Board created by the legislation are tasked with creating an exchange to present health plan options to individuals and small businesses beginning January 1, 2014. Concurrent with Governor Schwarzenegger’s signing of the bills, the Obama Administration announced a $1 million grant to the state “to fund the costs of preliminary planning efforts related to the development of the Exchange.” Further federal funds are expected to become available to the California Health Benefit Exchange in 2011. After 2014 the Exchange is designed to be supported entirely from fees paid by health plans and insurers, meaning no general revenues will be allocated to the entity.

Some carriers supported the legislation; others urged the Governor to veto it. The concern of many opponents was the power given to the Exchange’s Board to exclude accept or exclude carriers from the Exchange. The fear, which is demonstrated on a weekly basis by local, state and federal agencies every day, is that the Board will use the carrot of being included in the Exchange as a lever to dictate what insurers do (and what plans they offer) outside the Exchange. Giving this power to an independent Board (one that is exempt from significant oversight by the legislative or executive branches of government) is seen as a threat to the private marketplace.

Supporters argue that this power is essential if the Exchange to going to fulfill the desired (and desirable) goal of negotiating lower health insurance premiums for consumers and businesses buying through the Exchange.

Brokers have had another concern about AB 1602 and SB 900. The federal health care reform envision exchanges that include “navigators” to help consumers and business owners explore their health insurance options. However, the PPACA leaves it to states to define the actual specifics of the navigator role. Will they simply be a “help desk” answering questions about how to use the exchanges or will they be actively engaged in providing advice and guidance on which plan a consumer or business should select? The California laws leaves these details to the Exchange Board. What’s of concern, however, is that language that would have required the California Exchange’s navigators to be licensed was removed from the now-signed legislation shortly before it was passed by the Legislature.

And there’s a sentence in Governor Schwarzenegger’s press release touting his signing of AB 1602 and SB 900 that is at both once reassuring and of great concern. “The Exchange will work in partnership with agents and brokers, community organizations and other “navigators” to help consumers make informed decisions based on the price, quality and value.” While it’s reassuring the Schwarzenegger Administration recognizes that agents and brokers need to be involved with the Exchange, it’s of concern that they consider licensed professionals to be on an equal footing with unlicensed community organizations and others.

What will be important for the California Association of Health Underwriters, the leading organization representing independent producers, and other agent groups to work through with the Legislature and the Exchange Board is that there is a difference between licensed, regulated brokers and others. Each can play a role. When it comes to publicizing the Exchange and providing general advice about how to use it, non-licensed individuals and entities can play an important and valuable role. Helping consumers select the health plan that best suits their unique needs and then providing ongoing service to purchasers once they’ve obtained coverage, however, is best performed by licensed and regulated professionals.

While Governor Schwarzenegger’s signing of AB 1602 and SB 900 directly impacts only Californians, other states are likely to study these bills as they contemplate the design of their own exchanges – another reason why legislation to clarify brokers’ role in the state’s Exchange should be introduced and enacted quickly in the next legislative session. So this California development could have repercussions across the country.

In some of the comments posted on this blog, some have suggested that Democratic states are likely to create anti-broker exchanges while more Republican states will create broker-friendly ones. This view, however, ignores the facts that Republican’s health care reform proposals are as those of Democrats to increase health care costs while undermining brokers’ role in the system. Consider Republican support for mandating carriers to offer health insurance coverage to all applicants (“guarantee issue”) and their opposition to requiring all consumers to purchase coverage (an “individual mandate”) No surer recipe for skyrocketing health insurance costs exists than imposing guarantee issue without an individual mandate. Assuming lawmakers will do the right thing just because of the political party they are in is naive. What’s required is a strong political and educational push by people who understand the current system, who sees its flaws, and have practical and meaningful ideas on how to fix it. Put another way, brokers must stay involved and engaged regardless of which political party holds the majority of seats in their state’s legislatures.

Fortunately, there’s still time (even in California) to make a difference. As noted, CAHU is already working on needed changes to AB 1602 and SB 900. Meanwhile, the National Association of Health Underwriters is deeply involved in working with state legislatures and insurance commissioners to help them develop exchanges that implement the letter and spirit of the Patient Protection and Affordable Care Act while preserving consumers’ access to qualified, professional producers.

In any change of the consequence and complexity presented by health care reform there will be advances and setbacks. The nice thing about politics and legislation is there’s always another election and another legislative session coming up. The key is to avoid giving in to despair with each setback, but rather to persevere until one achieves the next advance.

Two of California’s largest insurance agent organizations have combined forces to seek urge the State Senate to amend Assembly Bill X1-1, the health care reform package produced by Governor Arnold Schwarzenegger and Assembly Speaker Fabian Nunez. Passed by the Assembly on December 17, 2007, the legislation is scheduled for a hearing before the Senate Health Committee on January 16th. Governor Schwarzenegger and Speaker Nunez have already started the process of qualifying the ballot measure needed to finance the bill’s provisions. ABX1-1 takes effect only if the funding initiative gains voter approval. It is expected to be on the November 2008 ballot.

The California Association of Health Underwriters (CAHU) and the National Association of Insurance and Financial Advisors-California (NAIFA-California) asked Senators to “take the time to get the legislation right.” Noting the compleixity of revamping the state’s health care system, the agents issued a statement claiming “Comprehensive health care reform is too important, and the stakes for Californians are too high, to push this legislation through without needed changes.”

Agents are asking for changes to how a state-run purchasing pool would operate. Of specific concern is the bill’s driving of residents receiving a tax credit to subsidize their premiums into the pool. Agents want there to be a level playing field. “The state doesn’t require food stamp recipients to shop only at government-run grocery stores. Similarly, Californians receiving tax credits to help pay premiums should not be forced to shop only at a government-run health insurance store.”

The agents are also urging Senators to define the minimum benefits package all residents would need to obtain. Additionally, agnts are asking the Senate to confirm the financing mechanism will actually meet the funding needs of the reform package. Specifically, they express the concern that a substantial portion of funding relies are tied to payroll taxes. Agents noted that wages don’t increase at the same rate as medical costs, meaning, over time, the financing will be inadequate to cover state health care obligations.

The California State Assembly passed Assembly Bill X1-1 on Monday, a comprehensive health care reform package negotiated between Governor Arnold Schwarzenegger and Assembly Speaker Fabian Nunez. (OK, much of the heavy lifting was done by their able staffs, but they’re paid not to take credit, so I don’t want to get them in trouble). Considering the challenges they faced — both policy-related and political — this is an amazing political accomplishment. One that is worthy of the celebratory press conference they held after the vote.

That vote, by the way, was largely along party lines (some papers are reporting it as 45 in favor; others report 46 voting “aye,” but all agree there were 31 “no” votes). The vote came just hours after publication of a spate of amendments, more than a few quite substantive. I would never suggest that Assembly Members voted on a bill of such complexity and import without thoroughly studying the legislation. But, in reality, Assembly members voted on a bill of such complexity and import without having much of a chance to thoroughly study the bill before casting their vote.

Lining up 45 or 46 “aye” votes in the Assembly was (relatively speaking) the easy part. Now it gets hard: proving the legislation is worthy of passage by the State Senate. Broadly stated, the Governor and the Speaker will need to convince Senate President Pro Tem Don Perata (and, to be fair, others in the Senate, but especially Senator Perata) that their health care reform package: 1) will not negatively impact California’s snowballing fiscal crisis; and 2) does more good than harm to the health and financial security of California residents.

Then it gets even harder: convincing California voters of the same two points. Because what the Assembly passed is only a framework for reform. It takes effect only if voters approve a ballot measure, expected to be qualified for the November 2008 ballot. (Even qualifying the financing is initiative will be challenging. Speaker Nunez has publicly stated drafting of the initiative needs to start on December 21st to make next year’s November ballot. In reality, the deadline is probably some time in January, but either way, it’s coming up fast. As discussed below, the Senate is unlikely to take up the measure, let alone pass it, until next month. This means drafting the initiative will need to be done quickly, and hasty drafting usually leads to flawed measures).

Senator Perata isn’t waiting for the Governor and Speaker to make the case on the financial issues. On Monday he asked the non-partisan Legislative Analyst’s office to report on the impact ABX1-1 will likely have on California’s budget. And by announcing the Senate will not convene prior to the start of the regular session on January 7th, he is providing the Legislative Analyst’s office time to conduct a meaningful investigation.

Then there’s the substance of the bill. The legislation is greatly improved over earlier versions — including what was passed (again on a party line vote) by the Assembly Health Committee just last month. For the record, one amendment added today of special interest to agent readers of this blog is a change recommended by the California Association of Health Underwriters and several carriers. It permits, but does not require, carriers to contract with agents and brokers to provide “marketing and servicing” of coverage offered through the purchasing pool.

Yet serious problems remain. Over the next several days there will be dozens of folks critiquing the package from the left and the right (and the diversity of opponents will be pointed to by supporters as proof that their compromise is fair). Some of the problems they’ll be identifying are extremely disconcerting. Take, for example, the enforcement of the requirement that all California residents obtain health care coverage — or the lack of enforcement, to be more precise. The enforcement mechanism seems to be limited to forced enrollment in a health care plan offering minimum coverage. This “penalty” is so weak, many Californians are likely to conclude it’s in their financial interest to wait until they need coverage before obtaining it. This, in turn, creates a New York-type health care system. And residents of New York pay, on average, individual medical premiums twice as high as do Californians.

It’s uncertain whether the State Senate will even considers ABX1-1. If it does, it’s uncertain whether they’ll seek to amend the bill. If they do make changes, it’s unclear whether those amendments will destroy the fragile compromise forged by Governor Schwarzenegger and Speaker Nunez. So it’s unclear whether comprehensive health care reform will pass the California legislature in a form that the Governor would sign. Even then it’s unclear whether voters will approve the initiative financing the bill, without which most of its provisions will never become law. And as previously posted, even if voters do approve the the ballot measure, it’s unclear whether federal health care reform will preempt the state’s effort before it can be enacted.

That’s a lot unclearness. But today is a time for Governor Schwarzenegger and Speaker Nunez — and their staffs — to celebrate a very real victory. The process of creating clarity can wait a few more hours.

It’s not that anyone wants to do away with agents. OK, let me rephrase that. Single payer advocates would like to do away with agents. They also want to do away with insurance companies, too, so it would be wrong to take this personally. Most of the folks working on health care reform don’t think that way. In fact, part of the problem is they don’t think think about agents — and the value we add to the system — much at all. As a result, a lot of the reform proposals out there are likely to eliminate agents and brokers from certain market segments, or at the very least, greatly diminish what we can contribute. This isn’t intentional, but it could be the result. And, of course, from the squirrel’s rabbits point of view, whether the truck runs them over intentionally or inadvertently, it’s still roadkill.

But it’s not only the truck’s fault. As insurance professionals we need to take responsibility for selling our value. And for earning it every day in our interactions with our clients.

Ross Pendergraft, who is Media Relations Chair for the Los Angeles Association of Health Underwriters recently circulated an email which is spot on, so much so, I’ve reprinted it below. (For those who aren’t aware of the background, Oprah devoted a recent show to health care reform. Her guests included Michael Moore, director of the film Sicko,and Karen Ignagni, president and CEO of America’s Health Insurance Plans, a trade organization. NAHU is the National Association of Health Underwriters, a professional organization representing insurance agents and brokers).

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After viewing The Oprah Winfrey Show, “Sick in America: It Can Happen to You,” I have a NAHU challenge. The America public needs to know that there are Health Insurance Agents able to assist people with their insurance claims especially when they are too sick and vulnerable.

Case in point: 1. The Oprah show highlighted three individuals with severe medical conditions, each having a battle with their insurance carrier. There was not one single mention that a Health Insurance Agent could have assisted these individuals with their ordeal. 2. Karen Ignagni, president of America’s Health Insurance Plans, in her commanding performance supporting the health insurance industry, never once mentioned anything about a Health Insurance Agent and the support the agent could have provided.

When I watched the movie Sicko I was extremely disturbed by the many half-truths that Michael Moore broadcast leaving me very little respect for Mr. Moore. However, I have to say after watching Oprah, I found myself starting to resonate with some of the beliefs that Michael Moore has with regards to our country’s health care problem.

I love this from the show: Although Karen Ignagni admits that America’s current health care system has its faults, she says a government takeover is not the answer. “There’s no perfect system. What we need to do is craft something that’s uniquely American. We have to take responsibility in insurance plans of doing a better job dealing with mistakes, dealing with people who are falling in the cracks, good physicians and good hospitals,” she says.

Respectively,
Ross Pendergraft

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Agents can make a huge difference in the health care outcomes for their clients. We serve as counselors when consumers shop for coverage and advocates when they encounter problems. Both NAHU and CAHU strive hard to get this message out to decision makers and opinion shapers. The reality is, however, that every agent needs to take responsibility for delivering this message. It starts with asking the question, “Do I add value to the products I sell?” If the answer is “yes,” then make sure your clients — and their legislators — know (CAHU’s current Operation Drumbeat communication provides a sample letter your clients can use as a starting point). If the answer is “no,” then it’s time to turn your business over to an agent who can provide meaningful services to your client or to change your ways before legislators, inadvertently or not, changes your business for you.

As lawmakers prepare for a special session on health care reform and the Governor touts a broad coalition backing universal coverage, the recently enacted budget should serve as a reality check.

Governor Arnold Schwarzenegger and his staff has made clear that any reform package emerging from the special session needs to include an “enforceable” requirement for every Californian to obtain health care coverage. This makes sense. Requiring carriers to issue coverage to all applicants without a corresponding mandate to buy is a formula for disaster. People are logical. If it makes economic sense to simply wait until medical services is needed before buying coverage that’s what they’ll do. Of course, when healthier individuals exit an insurance pool, overall claims increase which leads to higher prices for those remaining. This drives more low cost individuals from the pool and premiums move even higher. Eventually you wind up with New Jersey where the average premium for individual health insurance is 350 percent higher than in California.

So the state’s promise of passing an enforceable mandate to buy coverage along with a mandate for carriers to sell that coverage is critical to the overall health care reform package.

One of the tenants of the California of Health Underwriters’ Healthy Solutionshealth care reform plan is that the state should demonstrate it can meet its current obligations before making new promises. Unfortunately, to date, the state has failed in this regard. As the Healthy Solutions document notes, as many as a million Californians are eligible for state-run health care programs, yet fail to enroll. According to the California Health Interview Survey, 447,000 children are eligible for, but not enrolled in, state health programs. Healthy Solutions calls on the state to first enroll this group before creating new programs.

It seemed the state was going to do just that. Earlier this year the Governor held a press conference at the Northeast Valley Health Corp clinic in the San Fernando Valley promising additional state funds to support enhanced outreach. According to the Los Angeles Daily News, the commitment was so firm nonprofit health clinics and local government agencies had already increased staff to bring many of those 447,000 into the state’s Healthy Families and MediCal programs. Yet, as part of the deal to pass a budget, an estimated $66 million was cut, resources which health advocacy groups told the Daily News would have enrolled about 100,000 children during the current fiscal year. The Northeast Valley Health Corp had hired nine people in April for this effort. At least half will now be let go and the others reassigned.

So, here’s what we’re about to witness: Legislative Leaders and the Governor will announce plans to expand eligibility for Healthy Families and MediCal. They’ll promise to enforce a requirement for all Californians to obtain health care coverage and offer premium subsidies to those in households with less than 400 percent of the Federal Poverty Level. At roughly the same time, the Northeast Valley Health Corp will be laying off roughly half of the nine people it hired in April to expand outreach to children and reassigning the rest.

This strikes me as a credibility problem of near Lyndon Johnson-like proportions. As CAHU suggests, the state needs to keep its current promises before making new ones. Yet the budget fiasco of 2007 demonstrates this may be beyond its ability.

At the very least all of this should (but won’t) give advocates of single-payer programs pause. After all, it’s a pretty bad omen when a liberal Legislature and a moderate Governor fail to reach out to 100,000 kids. Imagine what might happen when the pendulum swings to a conservative state government. And the pendulum always swings.

I’ve written a lot in this blog about unintended consequences. Like the law of gravity it is ever present, impacting everything. Simply put the law of unintended consequences is that whatever the intent of any given piece of legislation, among its impact will be things unhoped for. No matter how well intelligent and savvy the authors, no matter what intended consequences result, any piece of legislation will have unanticipated, unwanted and unwelcome results.

Proof that the unintended consequences is a strong force can be found in a report conducted by Milliman, Inc., a respected independent actuarial firm on behalf of America’s Health Insurance Plans, an industry trade group. Putlished in July, the report takes on special significance in light of the health care reform initiatives put forward by Governor Arnold Schwarzenegger, Speaker Fabian Nunez and Senate President Pro Temp Don Perata. (The Impact of Guaranteed Issue and Community Rating Reforms on Individual Insurance Markets).

The study demonstrates that while the goals of reforms which established guarantee issue and community rating were laudable, “they frequently had unintended consequences that disrubted the individual marketplace,” according to Leigh Wachenheim. a Principal and Consulting Actuary at Milliman.

This result shouldn’t surprise anyone. These reforms bring into the insurance system individuals with higher costs than those previously in the pool. This is what is these laws intend to do and, personally, I believe it is a good thing. However, where there’s no offsetting incentive or requirement for lower risk individuals to buy insurance, the result is higher claims than previously experienced. This means rates go up for everyone. This in turn drives some low risk consumers out of the insurance market. Which means further increases are required for what is now an even higher cost pool. This antiselection process leads to substantially higher premiums as only high risk individuals remain in the pool. There’s nothing sinister about this. It’s the way every medical coverage pool works whether it’s for-profit or non-profit, government-run or private.

And it’s what happened in the eight states studied by Milliman. In two of the states, New Hampshire and Kentucky, the results were so negative and severe the guaranteed issue and community rating laws were repealed. A similar dynamic occurred in Washington leading to a significant weakening of its guarantee issue provisions. In other states, carriers fled the individual market where they can and the cost of coverage has skyrocketed. Another impact the study identifies is that the reforms do not appear to be effective in increasing the number insureds in these states.

This report should be required reading for every legislator and the governor, too. Hopefully they will come to the logical conclusion: guarantee issue can have a very positive impact on the market, but only if it is done correctly. This means linking guarantee issue not on the promise of an effective mandate to purchase coverage, but on a mandate to purchase coverage proven to be effective.

That’s why the California Association of Health Underwriters, in its Healthy Solutionshealth care reform plan, recommends triggering guarantee issue only after 90 percent of California’s population has medical coverage. Until then, CAHU recommends expanding the current state pool for high risk individuals so it can serve as an effective insurer of last resort. Even after the 90 percent threshhold is met, carriers should be permitted to raise the rates and exclude from coverage pre-existing conditions of the 10 percent who fail to abide by the law. (The length of time these penalties could be applied would be commensurate with the length of time the individual remained outside the insurance system).

Without an effective mandate to purchase coverage, the guarantee issue provisions being pushed by the Legislative Leadership and the Governor will do more harm than good. Premiums will increase, carriers will leave the market, and the number of uninsured Californians will remain untouched. This obvioulsy is not their intent, but it would be the likely result. Afterall, just because consequences aren’t intended, doesn’t mean they’re not foreseeable.

I’ve been predicting that Governor Arnold Schwarzenegger would call a special session to push through a health care reform package for quite some time now. As the Legislature faces adjournment in less than a week, it looks like it’s now become all but a certainty. But it seems the special session is only a prelude. According to an article by Mike Zapler in the San Jose Mercury, the Governor will use the a special session to pass a framework for reform, but make much of it contingent on funding to be enacted by an initiative. The Mercury reports an aide to the Governor predicting that “Schwarzenegger would assemble the ‘strongest, most robust health care coalition ever put together’ to push for the initiative.”

The aide is probably right. The Governor will be able to muster support among hospitals, insurers, consumer groups, and unions to create a unique and potent coalition. There’d still be opposition, including from some from hospitals, insurers, consumer groups and unions. But the mere fact that these stakeholders would be split on the issue is a huge win for the Governor.

How the split within these interest groups works itself out will depend in large part on how well the framework is designed and what funding mechanisms are included in the initiative. For example, the Democratic majority’s legislation, Assembly Bill 8 (Nunez) gives unprecedented power to the Managed Risk Medical Insurance Board to raise fees on every business in California without considering the impact of the fees on the state’s resources or economy. If the Governor endorses this approach the framwork will be perceived as hopelessly flawed by a substantial portion of the business community which would otherwise have supported the Governor’s ballot measure.

The nature of the taxes and fees the Governor proposes will also impact the outcome. Broader taxes will be required to raise the billions of dollars required to achieve anything close to universal coverage. Some in the business community support a one-percent increase in the sales tax to raise the necessary funding. Others will argue this is a particularly regressive form of taxation which punishes low income families — albeit this population will no doubt benefit the most from the overall package.

In looking for more narrowly-targeted taxes, the Adminstration may want to look at the list of potential financing mechanisms proposed by the California Association of Health Underwriters in its Healthy Solutionshealth care reform plan. CAHU recommends taxing activity which directly impacts health care costs. This includes common targets like smoking and alchohol, but CAHU goes further. It recommends imposing fees on handguns and ammuniation and on unhealthy foods. These would no doubt be controversial, but there’s no denying they target significant drivers of increasing medical expenses. (Full disclosure: I helped draft Healthy Solutions and pushed to have these targeted taxes included).

What all this means is, the coming week will be devoted mostly to political theater. Act One will be symbolic passage of Democratic reform proposals followed quickly by vetos. Act Two will be the special session. If robust public debate flourishes at this point the result could be a framework for reform which is reasonable and effective. Act Three would be the funding initiative, most likely to be part of the November 2008 ballot. What’s interesting is, while the script is finally becoming clear, no one is really certain yet if the play is a comedy or a tragedy.